An Auction Rate Securities (ARS) David vs. Goliath story

Excelent article, Peter, you nailed it on the head!

Lowell:

What State did you contact and how did you get a hold of the right person at the attorney generals office?

Thank you very much for writing this, Peter. N.B.--David in your story knew more than most of us did. The words "auction," "auction rate
securities," "Dutch auction" were in fact never used or mentioned by most of the brokers who put people in these things. (Nor, in my case, was a slightly higher interest rate.) I don't think people realize, we were a lot more innocent than that. These were called money markets, 7 day CDs, floaters, 7 day paper. I've talked to very few victims of this who ever heard the proper terminology, or, for good reason, they would have been scared off!

I asked for, and was led to believe I was opening, a money market checking account with a trusted family broker. Liquid. No risk. Nothing more.

I feel like I bought a Car from a dealer with a lit fuse to the gas tank; as I drove off the lot I could see ubs and brokers in the rear view mirror high fiving their fraud.
(Humanity is a real letdown sometimes)


Erik

I was told that these Preferred shares were accessible the same as a money market account. I was switched into these shares instead of purchasing pre-refunded and/or short term expiring Munis. I have a financial advisor who advised me that they were liquid. When I asked him now how he knew this he told me that he was advised by TD Ameritrade, Merrill Lynch and bond traders.

When the auctions failed I asked, " I thought you told me they were liquid". His response was “ I thought so too." I was never given a prospectus or any information on how these shares worked.

Why would a preferred shareholder voluntarily take about 150 basis points less that common shareholders if they were going to be ensnared with a “perpetual preferred share” and the potential risk of principle. The answer is: Nobody would unless they were defrauded.

There is a somewhat simple solution to this situation. The funds like Pimco, Nuveen and others need to de-leverage and redeem the preferred shares since their business model is no longer viable. What is their resistance? Fund management fees. If a closed end fund has a 2 to 1 ratio of common to preferred shares and they de-leverage they loose 1/3 of their income.

I currently hold $650,000 of these useless ARPS, and cannot complete the construction of my house. Morgan Stanley wants to offer a loan that would provide 50% of the money (325,000)---but you cannot build half a house and the loan must be collateralized by your brokerage account. If the brokerage account goes down--you need to deposit more cash. Obviously, if I had the cash to build the house I would not need the loan. So, if I am cash strapped, where am I supposed to find the cash to collateralize the loan, if the account decreases in value? It is one huge circle that drives you further and further towards bankruptcy. Meanwhile Morgan Stanley is filling their coffers with new loans and services. Also, beware, Morgan Stanley is still representing that the ARSs are worth par--what I paid for them. But you can be rest assured that they are worth 50% of this. After you take the loan, they will mark them down, and make a margin call and you will be left trying to scarf up another $300,000 from some other source to fund the margin call. Perhaps you will take another mortgage on your house or borrow from your family.

Oh by the way, you cannot sell these things anywhere--who wants Libor+ 1.5% on an illiquid security?

a class action lawsuit was filed against morgan stanley yesterday. You can see the complaint at www.zlk.com. The firm is filing similar lawsuits against many other banks.

A new site is being put up by Harry Newton named www.auctionratepreffereds.org. He is a very prolific writer and his blog, www.technologyinvestor.com is insightful. He has $4.5m in ARPS and is not too happy about this.

Everyone move over to the other blog, which is where all the real information is:

http://www.bloggingstocks.com/2008/02/27/when-the-collapsed-auction-rate-securities-ars-market-gets-per/

And by tomorrow, or Friday at the latest, YOU MUST EMAIL YOUR PERSONAL STORY AND COMPLAINT IN DETAIL TO the SEC Enforcement Division at

ENF-ARScomplaints@SEC.gov

They ARE WAITING TO HEAR from as many of us as possible and as soon as possible about the details of this story.
The address again:

ENF-ARScomplaints@SEC.gov

TELL THEM

1. What broker put you in this and when.

2. What you told that broker directly about your investment objectives were in opening the account (complete liquidity, low risk/low yield, etc.) Use specific words.

3. What percentage of your net worth this represented (for most of us, a lot!) and where your money came from (life savings over 20 years of work, sale of a hard earned business, money parked & saved for a house, money put aside for old age, small inheritance from a hardworking parent)

4. What those you-know-whats told you they were putting your liquidity in. N.B. This is important and even the press has it wrong!! Most of us were NOT told anything about "auction rate securities." The words were never used. Tell the SEC what words WERE used: floaters, 7 day CDs, 7 day paper, money market account, etc. Tell the SEC what words were NOT used. "Auction." "Dutch auction" "no duty to participate" "illiquidity" "auction failure.
Use specific words.

5. What disclosures you were given either in writing or verbally. Did you get a prospectus? Have you NOW seen a prospectus now that it is too late? Were you advised of ANY risk to liquidity? Did anyone mention auction failure? Did anyone mention that the brokerage itself was keeping the auctions liquid? Did anyone happen to mention that the brokerage believed it had no obligation to you to continue to do so? If the answers to these questions are NO, as I know they are in, like, 100% of our cases, tell the SEC loud and clear.

6. Finally, when and how were you told that your "liquidity" was no longer liquid? Did your advisor call you to say auctions were failing? Was that the first time you had EVER heard of auctions? Was that the first time you had ever had your own brokerage was an inside player keeping this market liquid? Did your broker call you to advise that liquidity might fail on or about February 13? Use specific language. Blow. The. Whistle.

I am stuck with 250,000 dollars of Blackrock auction preferred. I am livid and frightened. Why is this not receiving more press on CNBC. I caught one brief discussion on CNBC about a month ago. I contacted a company named RSTN they supposedly provide a secondary market in these securities. I'm sure if I put them out to bid they will be severely discounted. I was told to expect .70 to .95 on the dollar. Has anyone out there heard about any secondary markets or this company I am mentioning. By the way, I managed to unload all my individual ars because the rates were higher. We are being held captive by the issuers of these closed end funds securities because with the current interest rate environment ( big spreads between short and long term ) they continue to thrive. Making good on their debt securities (us ) would hurt their common shareholders and why allow that to happen as long as they can hold off. Only the pressure of lawsuits will get them off their asses.

GREAT ARTICLE PETER - YOU NAILED IT!!!!!!!!!!
I have done interviews with the NY Times and the Wall Street Journal about my similiar story. I was sold a bil of goods by UBS safe secure cash equivalents I need to pay taxes, busines expenses, tuition and my hard earned money has been stolen by the deceitful banks and closed end funds that raped me. The federal government has done nothing, the media does not care about the little guy. WARNING TO ALL BANKS ARE NOT YOUR FRIENDSA AND GOVERNMENT ONLY CARES ABOUT THE BIG BANKS THE REST OF US HAVE BEEN THROWN UNDER THE BUS. if you want your money safe stick it under the mattress.

For those holding ARPS, you will get funds back once market opens up. This writer, while informative about this topic, is very uninformed about investing. As he said "When he received the proceeds, it would have been a good idea to split it up into 15 accounts -- each below $100,000 -- so they would be FDIC insured." Are you kidding me? That is absurd. First off, only the first $100k at a bank is FDIC insured, no many how many accounts you have at that bank- it is to the tax id.

Dave's mistake was going to a BANK for INVESTMENTS... They are the worst in the business. The least competent folks end up at the banks. Morgan Stanley (et. al of big four brokerages) are losing billions of their own money. Your best bet is an independent brokerage firm with no investment banking to conflict the relationship. Get two opinions please before investing a penny.

UBS - or U Been Screwed has just marked down ARPS about 5% check you online statement if you dont want to wait til the end of the month not only is your money frozen on paper you just lost 5%. So much for cash equivalent. What a bunch of cheats and thieves. I urge all to stay away from UBS and the others until they do the right thing and rescind these fraudulent investments and make the retail investor whole.

Fuuuannyy, Erik!


I used the same comparission:
I trust today used car dealers more than I trust Bankers!

http://arsclassaction.com/SEC.html

Glen,
I read another UBS meaning:
Upcoming Bear Stearn

Retired in 2008 Single with children 4 and 9 years old. Telling my Morgan Stanley adviser many times about losing my business and financially everything else after 9/11. The stress of risk by investing the last 2 years almost killed me. Many time I explained Retiring with small children. A must of liquidity and no risk. . liquidated all my investment within the last 2 years selling the last of my stocks 9/2007. Over $700,000.00 . My Morgan Stanley called many times. Explaining to my Morgan Stanley Adviser I just opened an account at a bank paying 5.01% on checking and FDIC insured up to $100,000.00. Saying I would need to open several different accounts but it would be worth the paper work. Instant liquidity and insured. With $700,000.00 at 5.01% for income . Much stress was lifted. Morgan Stanley adviser called a few more times . Great news Reassuring me Every time I ask [ Over 10 times] about worst 9/11 , Enron, Sky is falling. synerios . no risk, 7 day or less liquidity over 5.01% and no paper work of opening several bank account. Last month I wrote a check for $5,000.00 My children schooling. Morgan Stanley adviser called and said I have Insufficient funds in my account and the check will bounce. Only then finding all my money $700,000.00 was in 7 day auctions and not worth enough to secure a $5,000.00 check. I have a Life insurance policy as bills stack up I must deiced will my children be better with me or without me. I believe in Jesus Christ all my life. God thank you for forgiving our sins. You have given me the great wealth more than I deserve, [[[[My Children]]]]worth more than all the money on earth or even my life on earth. I ask only protect our children. For you cannot take money with you and it cannot buy Love, True Honor or Respect. [ The Key to Heaven] You can take Love, True Honor and Respect with you.

Joe, just on the remote chance that you are serios:
1) Church doesn't condone suicides,
you can't be a good Christian and suicide victim all at the same time

2) Don't let bastards grind you down,
grind them instead.

You'll find lots of folks in the similar shoes at
http://arsvictim.com

I went to my bank to buy Cds as I would never buy
any thing but cds. The broker at my Wells fargo
Bank wrote down that I was buying 7 day Cds.
My money was barrowed to invest in my company
it was $300,000 and I am paying a high rate on the money. And I have to pay this money back soon and now I have no means to do so. I am in dire trouble. I am woman of 59 years this represent life time of work as I used my property as security . The bank will not respond to me or my attorney. The bank lied when I bought the product.
and they are on Lock down mode. How can we all get together to help one another. I will try to get to the media. I have to feel that talking points on the product we bought was encouraged by the government somehow, because the story are all the same Howelse could all these broker be
so brazen. I still do not know what exactly I own.
write me as offen as you like. I want to help

I do not know how to do a URL

My husband and I are caught up in this mess, thanks to our financial advisor. My husband was looking for a short-term solution at the time. Unfortunately, we now have most of our retirement $$$ tied up in these securities, based on this person's advice. When our advisor called us in February for our approval to sell them, he downplayed the situation. However, based on what I've been reading, it was already too late. When I talked to him in March, he still did not convey the severity of this situation. He danced around the issue and never came out and told us that our accounts were, in essence, frozen.

After that, I decided to email him every time I have a question so that I have his explanation in writing (as back-up in case things get worse). I don't know what else to do. My husband and I have had many sleepless nights the past two weeks. We're afraid that it may be years before we see our money. From what I've read, some people seem to think that we may not get much of it back. If so, I don't know what we'll do.